Mobile Money: Making Financial Services More Inclusive in Africa

Making Financial Services More Inclusive in Africa

The phenomenon of mobile money services which only started in earnest a few years back has changed the way people in Africa operate when it comes to transacting money from one person to another, among other financial transactions.

There is increased enthusiasm about the growing number of mobile phones in developing countries and the new possibilities that mobile technology brings to individuals, helping them to meet their day to day needs.

With the rapid uptake of mobile telephony across the globe and Africa in particular, many relevant technologies have come up to enable small enterprises and individuals to address their financial needs leading to the birth of mobile money services.

The phenomenon of mobile money services which only started in earnest a few years back has changed the way people in Africa operate when it comes to transacting money from one person to another, pay bills, buy credit and data for their individual use as well as for other people and most recently, operate a bank account from one’s phone. And it is set to expand further in the next few years.

In the 2015 annual letter, Bill Gates agreed that mobile money has transformed the lives of people— the previously unbanked—in developing countries and predicts that digital banking through mobile phones will transform people’s lives for the best.

“In the next 15 years, digital banking will give the poor more control over their assets and help them transform their lives. The key to this will be mobile phones,” he said in the letter noting that by “2030, 2 billion people who don't have a bank account today will be storing money and making payment with their phones. And by then, mobile money providers will be offering the full range of financial services, from interest-bearing savings accounts, to credit, to insurance.”

Even as the traditional ‘bricks and mortar’ banking infrastructure struggles to make the business model work to serve low-income customers, particularly in rural areas, the report says that it is worth noting that “over one billion of these people have access to a mobile phone, which can provide the basis for extending the reach of financial services such as payments, transfers, insurance, savings, and credit.”

In 2014, the mobile financial services sector continued to increase owing to the creation of enabling regulatory frameworks in several markets. Mobile financial services (MFS) are now available in over 60% of developing markets making it easier for people in the rural marginalized areas to access the banking services on their mobile phones compared to accessing conventional banking and financial services.

This trend is expected to grow even further as the smartphone penetration rises in the coming years.

Further, the competition between network operators (MNOs) will open up more markets for MNOs developing and adopting interoperable solutions for the benefit of their clients operating on different networks.

The number of registered mobile money accounts globally grew to reach just under 300 million in 2014, MMU report says.

Conventional banks cannot afford the infrastructure to serve the poor as efficiently as the MFS does. With this realization, regulatory frameworks have been put in place to allow both banks and non-banks to provide mobile money services in a sustainable way. Banks are fast at taking up the role of mobile money and exploring how this can be used to expand their markets to the rural areas. With many people in developing countries having access to mobile phones, more than 70% of adults in many countries are subscribers and mobile operators and their agents across nations in Africa are making profits just as the financial institutions do, serving the wealthy.

Savings and Credit

Other than just the usual person-to-person (p2p) transaction without accompanying exchange of goods or services, mobile money also allows for the payment of goods and services. Additionally, mobile money lets individuals do other financial services like savings and credit. The three services offered by mobile money are referred to as M-transfers (p2p), M-payments, and M-financial services, respectively.

There are two ways through which people are able to access and utilize mobile money services.

The MMU report says that the first method is whereby there is “network of physical access points where customers can typically deposit cash into, or take cash out of, their mobile money account – these access points are primarily agent outlets. The second is the technical access channel – the interface which customers use to initiate transfers and payments directly on their mobile handsets.”

The report argues that by December 2014 mobile money agent outlets grew by 45.8% reaching a total of 2.3 million globally outnumbering the number of bank branches.

With increased subscriptions, many people can now save regularly as well as access credit from financial institutions and agents directly to their mobile phones.

In Kenya for example, the introduction of M-Shwari loosely translated as ‘cool’ or ‘calm’ money, by Safaricom in collaboration with Central Bank of Africa has seen more than 3 million subscribers opening mobile accounts to save and get credit without the use of traditional banks. M-shwari allows subscribers to earn interest on their money which has further attracted the unbanked who initially hid money under mattresses and it was earning no interest.

In the first four months after M-Shwari introduction, Rachel Botsman says in an article that “2.3 million subscribers opened accounts and more than 4 billion Kenyan shillings ($50.14 million) have been deposited.”

Now banks have realized that to meet the needs of the many people in Africa, they need to take advantage of mobile money to attract new members as well as provide easier means for existing members to save and access credit.

Consequently, banks have collaborated with MNOs to bridge the gap in the market. Opening bank accounts as been made easier with new customers being encouraged to open bank accounts via mobile phones by dialing specific codes provided by particular financial institutions. Once opened, clients can continue to deposit, withdraw and access loans directly to the phone without ever visiting a bank.

Some banks like Equity Bank in Kenya has even developed its own Subscriber Identity Module (SIM) card named Equitel which allows its members to operate their accounts via mobile phones. Equitel permits subscribed customers to deposit or withdraw money through their mobile phones as well as keep up to date with account operations including tracking payments and deposits by other people.

Other companies have also collaborated with mobile money transfer operators to avail services and goods to their clients. Take for example M-Kopa (Kopa is Swahili word for Credit) which has collaborated with Safaricom’s M-Pesa (Pesa means money) to provide to over 300,000 families in Kenya, Uganda and Tanzania with affordable solar power using mobile money payment service to facilitate pay-as-you-go feature. Recently, M-Kopa launched solar-powered digital Televisions which can be accessed by clients using the same pay-as-you-go system.

G-Tel- a mobile phone company has also availed a means through which Kenyans can acquire smartphones. Through collaboration with Airtel Kenya, a client can get a smartphone after meeting the specifications and pay monthly installments for a year after which they own the gadgets.

How do these companies handle defaulters?

Well, the introduction of credit-scoring institutions, MNOs, and financial institutions have combined data of defaulting clients which is then used to track such clients as well as blacklist them from accessing any more loans in future with any credit offering facility in the country.

This has seen more and more citizens endeavoring to pay up loans lest they are blacklisted and harm their chances of accessing such favors in the future.

MMU says that “new credit scoring models using MNOs data are starting to result in lower numbers of nonperforming loans compared to traditional lending. These models are helping to provide access to credit for many first time formal borrowers.”

Although MMU argues that rewarding good repayment behavior by reducing the interest rate could further attract development of this market, this is yet to be seen. Credit scoring agents have only used the ‘stick’ end of the “carrot and stick” metaphor.

Mobile Insurance Services

According to MMU report, moving on to mobile insurance will and can appeal to people on low incomes who are vulnerable to financial shocks that can have devastating long-term consequences.

The firm advises the insurance industry to take advantage of mobile phones to reach a large, diverse pool of customers already using mobile money platforms.

As of June 2014, MMU reports that the mobile insurance industry had issued more than 17 million insurance policies representing annualized growth of 263% in developing countries.

In Ghana, the partnership between MicroEnsure and Airtel Ghana provides ‘3 for free’ life, accident and hospital insurance services to its subscribers. After its launch in January 2014, over one million policies have been initiated.

“Airtel subscribers who top-up more than GHS 5 ($1.50) per month receive free life, accident and hospital cover for the following month. The more a person tops-up, the higher the level of cover. From February 2015, subscribers will be able to pay an additional GHS 1 ($ 0.30) per month to double the insurance cover, reaching a maximum of GHS 5,000 ($ 1,500) for life and accident cover, and GHS 300 ($ 90) for hospital cover. An additional option for subscribers is to pay GHS 3 ($ 0.90) to extend the same level of cover to a family member,” MMU findings indicates.

Mobile money services in Africa are taking the countries in this region to the next level of development by availing easy to pay loans to the unbanked, making money transfer from one individual to another, easing the payment of services and goods as well as providing a means through which people can save and access insurance.

Additionally, this service has enabled subscribers to pay for their day-to-day utilities like purchases at supermarkets and malls, paying for electricity, water and other bills, paying school fees, health needs and making payment for other life-stage ceremonies like weddings, holidays and funerals, among others.

In his 2015 letter, Bill Gates argues that the vision of the future isn't going to materialize by itself.” He says that mobile phone access, for example, still isn't equal; citing a case in Bangladesh where only 46 percent of the women own a phone, compared to 76 percent of Bangladeshi men, which means women lack access to mobile money services (bKash) and the opportunities that the digital economy is bringing to that society.